State, investors in tug-of-war over resurrecting Egypt’s gold mines

Egypt has been trying to lure mining firms to unearth Egypt’s gold which could make it a top global producer and overhaul the country’s ailing economy. However, investors view the investiture terms as unappealing. In 2014, a new and more flexible legislation replaced the Egyptian 60-year-old Mineral Wealth Law, still, it failed to persuade gold miners.

The government offered investors royalty payment and production-sharing agreements, a model that companies believe it fails to fit with their business needs, as they consider the capital costs can stretch for decades while they develop mines that require hundreds of millions of dollars in investment, which the country needs to evolve a relatively untapped gold-mining threshold.

When the government launched its first international tender for gold mining concessions for eight years in January 2017, there was a tepid response and Egypt’s three main foreign companies, Centamin, Aton Resources, and Thani Stratex Resources did not partake in the tender which included five concessions in the Eastern Desert and the Sinai Peninsula.

Chairperson of Centamin, Yousef El-Raghy, said ‘the reason we did not participate is that the terms were against investors’ interests. The government should follow investment schemes of mining sector in other countries’.

Countries like Peru and Mexico adopted a modest royalty on mineral production and tax collection. This system helped to launch their mining sector and enabled them to become among the world’s top 10 gold producers. The Egyptian government still sees its model reflecting a lower exploration risk in a country where ancient mines populate the desert, indicating known mineralisation areas.

Another shot

In Egypt’s mineral-rich Eastern Desert alone, some exploration companies estimated the potential gold reserves of higher than 300 tonnes. The government recently hired an international advisory office, Wood Mackenzie, to lay out a development strategy for the mining sector, so as to reach 2% of gross domestic product (GDP) within five years, compared to the current 1%.

During the 15th Middle East Mining conference last week, hosted by Cairo, Ricardo Monte Alto, head of Metals and Mining Americas at Wood Mackenzie, said that the lack of available and accessible information to investors and current legislation represent obstacles to the mining sector.

Wood Mackenzie recommended amendments to Egypt’s Mineral Wealth Law, which the State Council is revising before sending it to parliament. The Minister of Petroleum and Mineral Resources, Tarek El Molla, said in the conference that these amendments include the separation of the exploitation from the utilisation stage, as the exploration agreements need procedures that take long time, and a cap on royalties, which protects investors from market fluctuations.

The government will also merge the quarries licenses in one entity and establish specialised committees to deal with the problems of gold in Egypt, especially illegal gold diggers and smugglers.

Tarek Barakat, the deputy of energy and environment parliamentary committee, said that ‘we have not benefited from our mineral wealth in the best way yet, and we need to convey that to the world and use our resources properly. We are waiting for the government to send the amendments of the Mineral Wealth Law, and we will ensure the new amendments can attract investments to our country.’

Hope for better deals

In a recent interview with Rosa El-Youssef, Ayman El-Saie, the head of the Egyptian Mineral Resources Authority (EMRA), said that ‘Centamin has made $4.5bn in revenue, of which EMRA got only $200m, which is quite little compared with tax and customs exemptions the company gets.’

Centamin is the operator of the country’s only commercial gold mine, Alsukari, whose production reached 108.8 tonnes of gold from the start of production in 2010 until June 2018. The company signed an agreement with the government in 1994 to operate the gold mine. The deal was criticised by many politicians who considered it a severe failure on the government’s side in the negotiations.

El-Raghy said ‘until now we have made $4.2bn in revenue, EMRA has got $350m of them, the government can audit our financial statements anytime, as we are completely committed to them.’ The new amendments should fix the 2014 law’s disadvantages that made it ‘unattractive for investors,’ he added.

Former Egyptian Oil Minister, Osama Kamal, said that ‘Alsukari concession’s contract was not the best of its kind. The main problem was that EMRA has a lot of bureaucratic procedures in order to take its share of the revenues, because it is not involved in the management process, unlike oil and gas deals,’ he said.

Kamal added ‘our model does not exist anywhere in the world, and we should impose taxes and royalty on mineral production’.

He believes that the recent move the government has taken is promising and will guarantee better deals in the future. ‘The government is on the right path as it is working on criteria that investors are interested in.’